The pension cuts are a notable concession for Democratic leaders, who have long been skeptical of such proposals. They set up a conflict with some of their biggest financial backers, public-employee unions, and with Republicans, who said it's irresponsible to suggest raising taxes.

The proposal by Rep. Peter Buckley, of Ashland, and Sen. Richard Devlin, of Tualatin, the Democrats who lead the Legislature's budget committee, is a blueprint that will guide budget talks in the coming months.

"If this wasn't an absolute crisis in education, we wouldn't be taking this step," Buckley told reporters in a Capitol news conference.

Buckley and Devlin proposed spending $6.55 billion on elementary and secondary schools over the next two years, a boost of about 15 percent from their current funding level. They said schools could save another $200 million from their proposed pension cuts.

Oregon schools get most of their money from the state. The Oregon School Boards Association said the money would be enough for some districts to avoid further cuts, but others will still face challenges.

The Democrats' proposal is $650 million more than Gov. John Kitzhaber proposed last year. To make it work, Buckley and Devlin recommend spending less than the governor in most other areas of the budget, along with $275 million in new revenue from eliminating tax credits and deductions. They did not say which ones should go.

The Buckley-Devlin budget plan relies on the extension of a tax on hospitals to pay for health coverage for some low-income patients on Medicaid and on changes in sentencing laws that would send fewer offenders to prison.

They would reduce spending on economic development and government administration. In other areas — including human services, the judicial branch and transportation — state agencies would get more money than they have now but not enough to cover higher costs to maintain the same level of service.

The budget chiefs acknowledged that their plan to raise taxes and cut pension benefits will be a tough sell to some lawmakers, but they said it's necessary to help schools shrink swelling classes.

Buckley and Devlin proposed limiting annual 2 percent cost-of-living adjustments for retirees earning a pension through the Public Employees Retirement System. They proposed a graduated cost-of-living increase so that pensioners would get an annual boost of less than 2 percent on incomes above a certain threshold, but they said details are still in the works.

They proposed eliminating — for retirees living out of state — a tax benefit intended to eliminate Oregon income taxes.

They also want to ask the board that oversees PERS to reduce retirement contributions required of government agencies — a move that would shift $350 million in pension costs into future budgets.

All of those pension changes would reduce costs not just for schools but for all public employers, including the state, cities and counties.

Democrats can expect pushback from public-employee unions, which contend that the proposed pension cuts are unconstitutional and will force taxpayers to pay legal fees and compounded interest that the state would owe retirees if the Supreme Court throws out the pension cuts.

Dueling legal opinions have arrived at different conclusions about the constitutionality of limiting cost-of-living adjustments for retirees.

"Balancing a budget on what amounts to a payday loan is unfair to seniors, public workers and all Oregonians," Rob Sisk, president of the Service Employees International Union, and Heather Conroy, the union's executive director, said in a statement.

They said the budget should raise taxes higher on corporations and the wealthy.

Republicans mocked the Democratic pension proposal, saying the cuts don't go far enough. They released a counter-proposal that would cut pensions much deeper, spend far less on social safety-net programs and take on less debt for construction projects.

They said their proposal would increase education funding even higher than the Democrats' without raising taxes.

"Our government in Oregon has plenty of cash. What we have not had is the will to live within our means," said Sen. Doug Whitsett, R-Klamath Falls.

Raising taxes would require support from three-fifths of the House and Senate. So Democrats would need votes from at least two Republicans in each chamber, assuming all Democrats were in favor.

Rep. Mike McLane of Powell Butte, the Republican leader, stopped short of ruling out a tax hike. Voters gave Democrats the majority, he said, and the GOP is willing to work with them if Republicans are invited to the table.

In a statement, Kitzhaber called the budget "a very good starting point."